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ARC RESOURCES LTD. REPORTS FIRST QUARTER 2011 RESULTS

^{Published on 2011-05-17 15:50:43 - Market Wire}
 

 Three Months Ended March 31 2011 2010(1) % Change ------------------------------------------------------------------------- FINANCIAL (Cdn$ millions, except per share and per boe amounts) Funds from operations(2) 194.1 167.9 16 Per share(3) 0.68 0.67 1 Net income 65.2 149.8 (56) Per share(3) 0.23 0.59 (61) Operating income(4) 81.8 79.2 3 Per share(3) 0.29 0.31 (6) Dividends 85.5 75.0 14 Per share(3) 0.30 0.30 - Capital expenditures 157.2 128.3 23 Net debt outstanding(5) 731.9 678.3 8 Shares outstanding, diluted(6) 284.9 251.8 13 Shares outstanding, end of period 285.4 252.8 13 OPERATING Production Crude oil (bbl/d) 28,108 27,640 2 Condensate (bbl/d) 1,872 1,245 50 Natural gas (mmcf/d) 246.4 217.9 13 Natural gas liquids (bbl/d) 2,834 2,006 41 Total (boe/d) 73,880 67,207 10 Average prices Crude oil ($/bbl) 82.27 76.26 8 Condensate ($/bbl) 88.34 80.00 10 Natural gas ($/mcf) 4.05 5.42 (25) Natural gas liquids ($/bbl) 43.83 48.12 (9) Oil equivalent ($/boe) 48.75 51.85 (6) Operating netback ($/boe) Commodity and other sales 48.83 51.93 (6) Transportation costs (1.10) (0.99) 11 Royalties (6.81) (8.58) (21) Operating costs (10.12) (9.29) 9 Netback before hedging 30.80 33.07 (7) Realized gain (loss) on risk management contracts 3.58 (0.01) - Netback after hedging 34.38 33.06 4 ------------------------------------------------------------------------- TRADING STATISTICS(7) High price 28.40 22.49 26 Low price 24.05 19.80 21 Close price 26.35 20.50 29 Average daily volume (thousands) 1,636 1,287 27 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Beginning January 1, 2011, all Canadian publicly accountable enterprises are required to prepare their financial statements using International Financial Reporting Standards ("IFRS"). Accordingly, ARC has prepared its unaudited Condensed Consolidated Financial Statements for the three months ended March 31, 2011 under IFRS and has restated its unaudited Condensed Consolidated Financial Statements for the three months ended March 31, 2010 to comply with IFRS. See Note 16, "Explanation of Transition to International Financial Reporting Standards" in the unaudited Condensed Consolidated Financial Statements for the three months ended March 31, 2011 for information on ARC's transition to IFRS and a reconciliation of its affected financial information. (2) Funds from operations is not a recognized performance measure under Generally Accepted Accounting Principles ("GAAP") and does not have a standardized meaning prescribed by GAAP. Historically, management disclosed cash flow from operating activities. All references to 2010 cash flow from operating activities throughout this news release have been restated for comparative purposes to reflect funds from operations. See the "Non-GAAP Measures" section in the MD&A for the three months ended March 31, 2011 and 2010 for a reconciliation of net income to funds from operations. (3) Upon conversion to a corporation, ARC trust units were exchanged for common shares. In all cases, the term per share can be interpreted as per unit prior to December 31, 2010. Per share amounts (with the exception of dividends) are based on diluted shares. (4) Operating income is a non-GAAP measure that adjusts net income for significant items that are not indicative of operating performance and that management believes reduces the comparability of the financial performance between periods. See "Operating Income" section in this news release for a reconciliation of operating income to net income. (5) Net debt excludes current unrealized amounts pertaining to risk management contracts, assets held for sale and asset retirement obligations associated with assets held for sale. (6) Based on weighted average shares plus the dilutive impact of share options outstanding during the period see Note 12 "Shareholders' Capital" in the unaudited Condensed Consolidated Financial Statements for the three months ended March 31, 2011. (7) Trading prices are stated in Canadian dollars and based on intra-day trading. 

 - On December 31, 2010, ARC completed its conversion from a trust to a dividend paying corporation after receiving security holders' and legal and regulatory approval in December 2010. ARC's business strategy is unchanged and all officers and directors remain the same. The common shares of ARC trade on the Toronto Stock Exchange under the symbol ARX. - ARC's first quarter average production of 73,880 boe per day, consisting of 44 per cent crude oil and natural gas liquids and 56 per cent natural gas, was up 10 per cent relative to the first quarter of 2010 (crude oil and liquids production was up six per cent and natural gas production was up 13 per cent). First quarter volumes were reduced by approximately 3,000 barrels of oil equivalent ("boe") per day primarily as a result of the Dawson gas plant being completely shut-down for approximately four weeks longer than planned and due to adverse winter weather conditions impacting certain properties. The additional Dawson downtime was attributed to complex electrical issues and severe winter weather encountered during the tie-in of the Phase 2 gas plant (see "Dawson Operational Update" news release dated April 20, 2011). First quarter production was down 13 per cent relative to the fourth quarter of 2010 as a result of the facilities shut-down at Dawson, the disposition of 3,400 boe per day during the quarter and adverse winter weather conditions impacting operations in certain areas. - Funds from operations of $194.1 million ($0.68 per share) in the first quarter of 2011 were up 16 per cent from $167.9 million ($0.67 per share) in the first quarter of 2010. Higher production volumes, crude oil prices and cash gains on risk management contracts were partially offset by lower natural gas prices and increased total royalties, transportation and operating costs in the quarter. - Net income was $65.2 million ($0.23 per share) in the first quarter of 2011, down from $149.8 million ($0.59 per share) in the first quarter of 2010. The decrease was largely due to an unrealized loss on risk management contracts of $148.6 million ($111.5 million net of tax) in the first quarter of 2011 relative to an unrealized gain of $83.8 million ($63.5 million net of tax) in 2010. First quarter 2011 net income included an $87.9 million gain on the sale of properties ($65.9 million net of tax). - Operating income was $81.8 million in the first quarter of 2011, a marginal increase from the same period of 2010. The increase was due to higher first quarter volumes, increased crude oil prices and cash gains on risk management contracts, offset by lower natural gas prices and increases in total royalties, transportation and operating costs in the quarter. - ARC's total realized price was $48.75 per boe in the first quarter of 2011, down six per cent from the $51.85 per boe realized in the first quarter of 2010. ARC's first quarter 2011 crude oil price of $82.27 per barrel increased eight per cent relative to 2010 prices. Natural gas prices, still depressed by high inventory levels and increased natural gas production in the United States, were down 25 per cent relative to 2010 levels to average $4.05 per mcf. While crude oil and liquids accounted for 44 per cent of first quarter production, they contributed 72 per cent of first quarter sales due to the strength of crude oil prices. - ARC realized cash hedging gains of $25.7 million in the first quarter of 2011, primarily associated with the hedging of natural gas. The first quarter unrealized mark-to-market ("MTM") hedging loss of $148.6 million was mainly attributed to crude oil hedges in which ARC has "locked in" the ceiling price on 20,000 barrels per day through 2011 and 18,000 barrels per day through 2012 at an average price of $91 per barrel. Approximately 55 per cent of expected 2011 total production is currently hedged with additional volumes hedged for 2012 and 2013. - Capital expenditures for the first quarter totaled $157.2 million. ARC drilled 33 gross operated oil wells and 10 gross operated natural gas wells with a 100 per cent success rate. ARC's 2011 capital expenditure budget of $625 million focuses on oil and liquids rich opportunities at Ante Creek and Pembina in Alberta, Parkland in British Columbia and Goodlands in Manitoba and supports paced development of the Montney natural gas opportunities in northeast British Columbia. - ARC completed construction on the 60 mmcf per day Phase 2 gas plant in Dawson early in the second quarter, effectively doubling ARC's operated processing capacity to 120 mmcf per day. ARC's Phase 1 gas plant returned to normal operations on May 1, after operating at a reduced capacity following a motor failure early in the second quarter. Including third party processed gas, Dawson production is currently approximately 155 mmcf per day and is expected to increase to 165 mmcf per day by the end of the second quarter as the throughput at the plants increases. - ARC has a strong balance sheet with a net debt to annualized first quarter funds from operations ratio of 0.9 times, with net debt representing approximately nine per cent of ARC's total capitalization. - ARC declared and paid a dividend of $0.30 per share to shareholders for the first quarter of 2011 and a dividend of $0.10 per share to shareholders for April 2010. ARC has confirmed a dividend of $0.10 per share to be paid on June 15, 2011 to shareholders of record on May 31, 2011, and has conditionally declared a dividend of $0.10 per share, payable monthly, for June and July of 2011 subject to confirmation by monthly news release and further resolution of the Board of Directors. - On January 31, 2011, ARC completed the previously announced disposition of approximately 3,400 boe per day and approximately 14.7 million boe of proved plus probable reserves associated with non-core properties in central Alberta for proceeds of $170 million. Proceeds from the sale were used to reduce indebtedness. In accordance with IFRS, first quarter net income included a $65.9 million gain, net of tax, as a result of the disposition. - This spring has seen severe flooding in parts of Saskatchewan and Manitoba, and parts of northern Alberta have recently been devastated by wildfires. These events have impacted the lives of thousands of Canadians, and ARC's employees and operations have not been immune. At this time, it is very difficult to assess the full impact that these events will have on ARC's full year production. Currently, approximately 5,000 boe per day of production is shut-in, consisting predominately of oil production. ARC is uncertain when electricity will be restored to the affected fields in Alberta and when both the areas impacted by wildfires and flooding will be accessible to resume normal operations and continue the execution of the capital program. ARC will monitor these situations, assess the impact on its full year budget production and will provide details in its mid-year review. Production volumes in 2011 may average in the 80,000 - 85,000 boe per day range with exit production expected to be in excess of 90,000 boe per day. 

 ------------------------------------------------------------------------- Q1 2011 Q1 2010 ------------------------------------------------------------------------- Net income 65.2 149.8 Adjusted for the following non-cash items: Depletion, depreciation and amortization 66.0 85.0 Accretion of asset retirement obligation 3.5 3.1 Deferred tax expense 19.1 23.4 Loss on revaluation on exchangeable shares - 1.8 Unrealized (gains) and losses on risk management contracts related to future production periods 136.6 (83.7) Unrealized (gain) on short-term investment (0.7) - Non-cash lease inducement 1.9 - Foreign exchange (gain) on revaluation of debt (9.6) (11.5) (Gains) on disposals of petroleum and natural gas properties (87.9) - ------------------------------------------------------------------------- Funds from operations 194.1 167.9 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 

 ------------------------------------------------------------------------- $ millions $ per share ------------------------------------------------------------------------- Funds from operations - Q1 2010 167.9 0.67 ------------------------------------------------------------------------- Volume variance Crude oil and liquids 11.3 0.04 Natural gas 13.9 0.06 Price variance Crude oil and liquids 15.6 0.06 Natural gas (30.3) (0.12) Realized gains on risk management contracts 24.5 0.10 Loss on annual settled risk management contracts(1) (12.0) (0.05) Royalties 6.6 0.03 Expenses: Operating and transportation (11.9) (0.05) General and administrative 6.6 0.03 Interest 1.1 - Realized foreign exchange gain 0.8 - Diluted shares - (0.09) ------------------------------------------------------------------------- Funds from operations - Q1 2011 194.1 0.68 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Represents first quarter unrealized MTM loss on annual call contracts which cash settle on an annual basis. 

 ------------------------------------------------------------------------- Q1 2011 Q1 2010 ------------------------------------------------------------------------- Net income 65.2 149.8 ------------------------------------------------------------------------- Add (deduct) non-operating items: Unrealized (gain) loss on risk management contracts, net of tax 111.5 (63.0) Unrealized (gain) on foreign exchange, net of tax (7.2) (8.6) (Gains) on disposal of petroleum and natural gas properties, net of tax (65.9) - Impairments (recovery) on property, plant and equipment, net of tax (21.3) - Unrealized (gain) on short-term investment, net of tax (0.5) - Loss on revaluation of exchangeable shares, net of tax - 1.0 ------------------------------------------------------------------------- Operating Income(1) 81.8 79.2 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Operating income is not a recognized performance measure under GAAP and does not have a standardized meaning prescribed by GAAP. The term "operating income" is defined as net income excluding the impact of after-tax loss on unrealized gains and losses on risk management contracts, after-tax unrealized gains and losses on foreign exchange, after-tax gains and losses on short term investments, after-tax gains and losses on revaluation of exchangeable shares, after-tax impairment (recovery) on property, plant and equipment, after-tax gains on disposal of petroleum and natural gas properties and the effect of changes in statutory income tax rates. ARC believes that adjusting net income for these non-operating items presents a better measure of financial performance that is more comparable between periods. The most directly comparable measure of operating income calculated in accordance with GAAP is net income. 

 ------------------------------------------------------------------------- Hedge Positions Summary(1) As at April - December March 31, 2011 2011 2012 2013 ------------------------------------------------------------------------- Crude Oil(2) US$/bbl bbl/day US$/bbl bbl/day US$/bbl bbl/day ------------------------------------------------------------------------- Sold Call 89.61 20,000 91.39 18,000 110.00 2,000 Bought Put 84.61 20,000 91.39 18,000 90.00 2,000 Sold Put 61.27 12,000 60.00 5,000 - - ------------------------------------------------------------------------- Natural Gas(3) Cdn$/mcf mcf/day Cdn$/mcf mcf/day Cdn$/mcf mcf/day ------------------------------------------------------------------------- Sold Swap 5.44 162,973 4.30 67,978 - - ------------------------------------------------------------------------- (1) The prices and volumes noted above represent averages for several contracts and the average price for the portfolio of options listed above does not have the same payoff profile as the individual option contracts. (2) For 2011 and 2012, all put positions settle against the monthly average WTI price, providing protection against monthly volatility. Calls have been sold against either the monthly average or the annual average WTI price. For annual sold calls, volumes are based on full year and ARC will only have a negative settlement if prices average above the strike price for an entire year, providing ARC with greater potential upside price participation for individual months. (3) The natural gas price shown translates all NYMEX positions to an AECO equivalent price based on offsetting basis positions and the period end exchange rate. The equivalent hedged NYMEX price would approximate $6.12 per mmbtu and $5.00 per mmbtu for 2011 and 2012, respectively. 

 ------------------------------------------------------------------------- Ex-dividend date Record date Payment date Per share amount ------------------------------------------------------------------------- April 27, 2011 April 29, 2011 May 16, 2011 $0.10 May 27, 2011 May 31, 2011 June 15, 2011 $0.10(1) June 28, 2011 June 30, 2011 July 15, 2011 $0.10(2) July 27, 2011 July 29, 2011 August 15, 2011 $0.10(2) ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Confirmed on May 16, 2011. (2) Conditionally declared, subject to confirmation by news release and further resolution by the Board of Directors. 

 ------------------------------------------------------------------------- 2011 Guidance Q1 2011 Actual % Variance ------------------------------------------------------------------------- Production (boe/d) 80,000 - 85,000 73,880 (10) Expenses ($/boe): Operating 9.40 - 9.70 10.12 (6) Transportation 1.10 - 1.20 1.10 4 General and administrative(1) 2.45 - 2.60 2.48 2 Interest 1.25 - 1.40 1.49 (13) Capital expenditures ($ millions) 625 157 - Diluted shares (millions)(2) 286 285 - ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) The 2011 annual Guidance for general and administrative cost per boe is based on a range of $1.65 - $1.70 prior to the recognition of any expense associated with ARC's long term incentive plan, $0.60-$0.65 per boe associated with cash payments under ARC's long term incentive plan and $0.20-$0.25 per boe associated with accrued compensation under ARC's long term incentive plan. Actual per boe costs for each of these components for the three months ended March 31, 2011 were $2.37 per boe, $1.53 per boe and a recovery of $(1.42) per boe, respectively. (2) Based on weighted average shares plus the dilutive impact of share options outstanding during the period. 

 John P. Dielwart, Chief Executive Officer